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October 26, 2012

Just a few weeks ago Flipboard CEO Mike McCue resigned from Twitter’s Board of Directors.   Following his resignation, McCue gave an interview to The Daily Telegraph expressing his concern about the future of the social media giant. As a well-known entrepreneur and leader in the technology industry, McCue’s comments are not surprising, but as a former director (and current shareholder) at Twitter, his comments are unusual, and in my opinion, inappropriate.

McCue’s latest venture, Flipboard, a social magazine, takes advantage of Twitter’s open relationship with third party developers and as such, he now has an issue with the way the social network is planning to handle third parties. McCue told The Daily Telegraph:  “Twitter can be incredibly valuable as an open communications mechanism but, if you close too many things down too quickly, if you think about it too short-sightedly, you could easily do a lot of damage to that ecosystem…Twitter was created as an open platform, an open communications ecosystem, and I hope it can stay that way. You have to be really careful not to let money get in the way of that.”

As a third party developer, one can understand the basis for McCue’s comments, but as a former director, his comments are at best inappropriate, and at worst, a breach of his fiduciary duties and his underlying director agreement with Twitter. The reality is that there is likely not much that Twitter can do in the aftermath of McCue’s comments.   Despite the fact that courts have taken an increasingly aggressive position on fiduciary duties post director service, his duties as a director have likely not been breached since they came to a close when he resigned from the board.  Furthermore, he is likely not in violation of his Director Retainer Agreement with Twitter.  Although the “non-disclosure” portion of Director Retainer Agreements has become more stringent, they are often times restricted to the term of “director service.”

There are two positive developments for boards as a result of the dispute between McCue and Twitter: (1) they are now on notice about McCue as a potential director; and (2) they should update their Director Retainer Agreements to include a reasonable time period for non-disclosure post director service.

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